Applying Activity-Based Costing to MYOB Group Ltd: A Financial Report

This report provides a comprehensive analysis of Activity-Based Costing (ABC) and its application to MYOB Group Ltd, a technology company providing software solutions. The report begins with an introduction to ABC, explaining its use in resource utilization and efficiency, particularly in manufacturing, and its applicability to the service industry. The study examines MYOB's mission, objectives, and strategies, including increasing market growth and penetration. It details how the ABC model assists in achieving these strategies by assessing indirect costs and identifying cost drivers. The report includes financial data, recommendations for adopting ABC, and a discussion of another management accounting tool, Life Cycle Costing. The conclusion emphasizes the benefits of ABC for MYOB's future growth and effective resource utilization.

Management Accounting
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Contents
Introduction......................................................................................................................................4
Activity based Cost Model..............................................................................................................5
ABC Model in accordance with the goals and strategies of MYOB Group Ltd. Mission and
objective of MYOB Group Limited................................................................................................6
Recommendations-..........................................................................................................................9
Another Management Accounting Tool suitable for the use of MYOB Group Ltd......................10
Conclusion.....................................................................................................................................11
References......................................................................................................................................12
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Introduction
Activity-based costing is a technique that has been widely used by many businesses in
order to find out the actual utilization of resources, It is mostly used in the manufacturing
businesses. It has been proved as very beneficial in increasing the efficiency of the business. It
deals with the utilization of the resources in the production activities. It can give good results in
service industry too if it is applicable in an efficient way. Below study is based on an
organization named MYOB Group Ltd. It is a big Australia based multinational company and it
belongs to the technology industry. This company is involved in providing software-related
services to small, mid-size as well as big companies. It provides different software that helps in
business management like management of payroll, payments, retail, tax solutions and CRM.
There are different benefits of ABC model that has been described in the below study. It
provides benefits by assessing the vision, mission, objectives and strategies of MYOB. It also
provides some recommendations for the benefit of the organization.
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Activity-based Cost Model
ABC costing refers to Activity-based costing. It basically deals with costing of different
things in a production process. It basically helps in keep a tracking of resources used and the cost
of the production. There are different activities involved in the production process and a
particular cost is assigned to each of them. This costing has been widely used in calculating all
the overhead expenses and the cost to the extent of revenue. It starts with identifying the
activities involved in the business and then allocates a cost and resources to each of them. It
assists in the initiation of activity to produce the outputs. The effective cost that has been utilized
in the production process in a particular time period is known as activity cost. It basically deals
with indirect costs. ABC costing only works when the model is totally based on the business
activities and the cost involved in the same. These costs are incurred in the manufacturing or
production process of goods or services. It is necessary to find out the estimation of the funds
requires in production activities, so this model is perfectly suitable for the same (Wink and
Corradino, 2011).
Features of Activity-based costing
There are mainly two types of cost involved in the business activities according to
activity-based costing. These two costs are fixed costs and variable costs. Fixed costs are the cost
that remains fixed irrespective of the units of production and it is incurred on a fixed basis for a
particular business. Even if there is no production activities are going on, this fixed cost will
remain the same. E.g. Rent, electricity bill and wages of labour. Variable cost is a cost that
totally depends upon the production activities and a number of units produced. This cost varies
according to the production activities like maintenance cost and diversification costs. This cost
helps in the improvement of the quality of the products as well as the design of the product
(Mohamed EL-Shishini and Upadhyaya, 2018).
It helps in the identification of cost drivers for each type of activity. A cost driver is a part
of the activity that utilizes the maximum cost in the manufacturing process. This model provides
a tracking support for the cost involved in the activities that are very beneficial for the business
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organization. It is necessary to create budgets for the business operation and do a proper
planning. When there is an observation related to increasing cost then this approach has been
used to reduce the cost of the planning and budgeting stage (RUAN and ZHOU, 2017).
After the introduction of this model, people have started using the same and replace it with the
previously used methods. The previously used methods consist of so many hassles and involve
difficult and lengthy calculations. They were more time consuming too. So, this method has been
proved very beneficial in reducing the time as well as the cost involved in the process of
calculating activity cost.
ABC Model in accordance with the goals and strategies of MYOB Group Ltd. Mission and
objective of MYOB Group Limited.
Every company has its pre-defined vision and missions. The major mission of MYOB Group is
to grow with the growth of the clients. It always focused on the retention of the customers by
providing them with the best business solutions. They want to provide a good level of
satisfaction to the clients and resolve their issues in an effective way. There are various
categories of the services that are provided to the clients that can satisfy their needs on different
levels (Gille, 2010).
The main objective of this organization is to increase the number of clients by providing them
online as well as offline services to all type of businesses. They do not focus on a particular
client size as the main motive is to create a solution that is compatible with all types of
businesses.
There are three types of strategies set by MYOB Group Ltd-
1. Increase the growth in existing market- This is an important objective of the organization. In
order to achieve the same, they are targeting their online subscribers that results in increasing the
subscription too.
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2. Penetrate the new market option- This strategy basically focuses on increasing the accessibility
of the market with the help of payments and increase the shares and the total market size.
3. Strengthen the working base and new market opportunities- It is important to grab all the
upcoming opportunities for the growth of the organization. MYOB has focused on the strategies
that help them in gain the available opportunities (Marsh, 2012).
They have the vision to provide the best technical support to the business. It has also created
strategies to maintain a good focus on the deliverables that have been transferred to its partners
and clients. It also wants to participate in the community level things as a member and would
create a good relationship with the shareholders of the company (Keuper, 2011).
How ABC model assists in achieving the strategies of MYOB Group Ltd.
All the strategies of an organization and Activity Based Costing always work together.
Strategies help a business organization to create plans for the future expansion of the
organization. Expansion plans involved different types of costs. A budget or estimation has
been created for the expansion plan when activity-based costing takes place.
MYOB belongs to service sector and ABC model basically works for manufacturing industries.
But it has been analysed in case of MYOB that this model can be used in the service industry
or technology-based industry. ABC tool is mainly used for assessing the indirect cost of the
operations belongs to a company. In the case of MYOB, a major part of the cost incurred is the
part of the indirect cost (Activity-based costing study, 2007).
ABC model has been used in the analysis of MYOB. The benefits or advantages due to the
same are-
The main focus of MYOB is to increase its customer ways in an efficient way. It has provided
online services for an increase in online subscriptions. All the allocation of resources and
analysis of cost have been done for the same by doing ABC costing. This helps in identifying
the ultimate cost of the product. It helps BYOD to understand the utility of each activity and
the advantage gain through that. ABC model provides assistance to know the estimated prices
of the services that are offered to tier 3 clients (Budgeting, 2013).
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The annual report shows the basic elements that identify the position of an organization. AN
observation has been done with the help of the annual report of BYOD. It has been defining
that the working if the organization has been divided into four parts. These four parts are-
 Clients and partners
 Enterprise solution
 Operation and services
 Cooperates (Hoozze and Hansen, 2014)
An analysis of cost has been done for BYOD according to the costing techniques used by the
organization. It was considered a common base for different activities of all the segments and
the cost for four segments are allocated according to the same. So, it results in the improper
allocation of costs. With the help of ABC model, the actual and real analysis can be done as it
considered the actual resources involved in each segment and cost involved in the same can be
calculated. This model helps in understanding the allocation of cost as well as the resources. It
also creates an understanding of different cost drivers (THORPE, 2015).
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Financial results of the Company
CL
IENTS & PARTNERS
ENTERPRISE
SOLUTIONS
OPERATIONS
CORPORATE
& SERVICE (INCL.
R&D) TOTAL
PERIOD ENDED 31 DECEMBER
2017 V000 $'000 $'000 $'000 $'000
Revenue
SME revenue 2,57,559 - - - 2,57,559
Practice revenue 85,848 - - - 85,848
Enterprise revenue - 64.594 - - 64,594
Payments revenue 6,284 - - - 6,284
NZ R&D Grant
revenue
'7 10A 2,198
3,49,691 64,594 2,198 4,16,483
Other profit and loss
disclosures
Direct materials,
royalties and reseller
commissions
21,255 14,217 459 - 35,931
Staff related 40,975 13.952 27,579
58,222 140.728
Marketing 8,053 688 138 8,142 17.021
General office and
administration 7.57E 1,444 3.066
20,800 32,886
Other expenses 7,734
7,734
Contribution 271,832 34,293 (31,242) (92,700)
182,183
The share of losses from equity 2.353
accounted investments
Depreciation and amortization 80,746
Net finance costs 13.602
Profit before Income tax 85,482
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Interpretation
These financial statements have shown that company has created value on the
investment. It is observed that company has a good amount to cash inflow from its enterprise's
solution business. The increased profit has shown that company increased its business efficiency
by using the advance costing system.
Recommendations-
MYOB has used an older model for analysis of cost that is not providing the correct
results. Use of ABC costing has been recommended to MYOB as it can create different benefits
for the company. Cost of each and every segment can be analysed properly that create a
convenience in finding out the maximum cost for each activity. The existing technique is not
worth and should be removed properly. ABC model is a modern way of analysing the cost and
staff can easily understand the same.
Another Management Accounting Tool suitable for the use of MYOB Group Ltd.
MYOB Group Ltd. can also use another method for analysis of cost other than Activity-Based
Costing. The model is Life Cycle Costing. Basically, it selects the different options that can
create an impact on the current as well as the future cost of the company. It compares the current
options available for investments and then provides the cost options for next 20 years after doing
a proper identification. It is considered as a long-term approach. The benefits of using this
approach are-
Evaluating the policies of the company- This model helps in doing the evaluation of the policies
of the company. It consists of a long term approach that BYOD needs for its expansion plan
(Nowack, Hoppe and Guenther, 2012).
Ensuring Regulatory Compliance- There are different compliances for the service industry and
regulatory authorities handle it. There are heavy penalties for the non- compliance. Life cycle
costing method helps in the reporting and documentation in a very good at that assists the
manager to follow all those compliances (Mittmann and De Oliveira, 2016).
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Conclusion
It has been concluded with the help of above analysis that Activity-based costing model
is very helpful for the future growth of BYOD. It also works in the service industry. Activity-
based costing is used according to the utilization of resources in the activities of business
organizations. This helps in assessing the estimated cost and resources involved in a particular
set of activities. Implementation of this model becomes more effective by describing the goals,
objectives and missions of the organization. If it is difficult for any company to implement ABC
model then it can also apply Life Cycle Costing model. This tool is also useful for long term
growth of MYOB. So, the best option for MYOB is to implement ABC Model.
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References
Activity-based costing study. (2007). Vancouver, B.C.: The Committee.
Budgeting. (2013). London: BPP Learning Media Ltd.
Gille, C. (2010). Life Cycle Costing. Controlling, 22(1), pp.31-33.
Hoozze, S. and Hansen, S. (2014). A Comparison of Activity-Based Costing and Time-Driven
Activity-Based Costing. SSRN Electronic Journal.
Keuper, F. (2011). Life Cycle Costing. Business + Innovation, 2(3), pp.3-3.
Marsh, C. (2012). Financial management for non-financial managers. London: Kogan Page.
Mittmann, N. and De Oliveira, C. (2016). Importance of cost estimates and cost studies. Current
Oncology, 23(0), p.6.
Mohamed EL-Shishini, H. and Upadhyaya, M. (2018). The Relationships Between Contextual
Variables and Perceived Importance and Bene-fits of Environmental Management
Accounting (EMA) Techniques. Journal of Environmental Accounting and Management,
6(1), pp.17-32.
Nowack, M., Hoppe, H. and Guenther, E. (2012). Review and downscaling of life cycle decision
support tools for the procurement of low-value products. The International Journal of Life
Cycle Assessment, 17(6), pp.655-665.
RUAN, Y. and ZHOU, L. (2017). The Research on Management Accounting Tools—Based on
the Comparison Between Activity-based Costing and Traditional Costing. DEStech
Transactions on Engineering and Technology Research, (amsm).
THORPE, R. (2015). PERFORMANCE MANAGEMENT. [Place of publication not identified]:
PALGRAVE MACMILLAN.
Wink, G. and Corradino, L. (2011). Intermediate accounting demystified. New York, NY:
McGraw-Hill.
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